15 The above list of examples is not intended to be exhaustive.
Considerations in the Selection of Accounting Policies
16 The primary consideration in the selection of accounting policies by an enterprise is that the financial
statements prepared and presented on the basis of such accounting policies should represent a true and fair view of
the state of affairs of the enterprise as at the balance sheet date and of the profit or loss for the period ended
17 For this purpose, the major considerations governing the selection and application of accounting policies
In view of the uncertainty attached to future events, profits are not anticipated but recognised only when realised
though not necessarily in cash. Provision is made for all known liabilities and losses even though the amount cannot
be determined with certainty and represents only a best estimate in the light of available information.
The accounting treatment and presentation in financial statements of transactions and events should be governed by
their substance an d not merely by the legal form.
Financial statements should disclose all “material” items, i.e. items the knowledge of which might
influence the decisions of the user of the financial statements.
Disclosure of Accounting Policies
18 To ensure proper understanding of financial statements, it is necessary that all significant accounting policies
adopted in the preparation and presentation of financial statements should be disclosed.
19 Such disclosure should form part of the financial statements.
20 It would be helpful to the reader of financial statements if they are all disclosed as such in one place instead
of being scattered over several statements, schedules and notes.
21 Examples of matters in respect of which disclosure of accounting policies adopted will be required are contained
in paragraph 14. This list of examples is not, however, intended to be exhaustive.
22 Any change in an accounting policy which has a material effect should be disclosed. The amount by which any item
in the financial statements is affected by such change should also be disclosed to the extent ascertainable. Where
such amount is not ascertainable, wholly or in part, the fact should be indicated. If a change is made in the
accounting policies which has no material effect on the financial statements for the current period but which is
reasonably expected to have a material effect in later periods, the fact of such change should be appropriately
disclosed in the period in which the change is adopted.
23 Disclosure of accounting policies or of changes therein cannot remedy a wrong or inappropriate treatment of the
24 All significant accounting policies adopted in the preparation and presentation of financial
statements should be disclosed.
25 The disclosure of the significant accounting policies as such should form part of the financial
statements and the significant accounting policies should normally be disclosed in one place.
26 Any change in the accounting policies which has a material effect in the current period or which is
reasonably expected to have a material effect in later periods should be disclosed. In the case of a change in
accounting policies which has a material effect in the current period, the amount by which any item in the financial
statements is affected by such change should also be disclosed to the extent ascertainable. Where such amount is not
ascertainable, wholly or in part, the fact should be indicated.
27 If the fundamental accounting assumptions, viz. Going
Concern, Consistency and Accrual are followed in financial statements, specific disclosure is not required.
If a fundamental accounting assumption is not followed, the fact should be disclosed.
* The Standard was earlier notified as part of Companies
(Accounting Standards) Rules, 2006, under Companies Act, 1956. The Standard has been notified as part of Companies
(Accounting Standards) Rules, 2021, under Companies Act, 2013.
1 Attention is specifically drawn to paragraph 4.3 of the Preface, according to which Accounting Standards are intended
to apply only to items which are material.
